csx 1q 08

21
1 1 First Quarter 2008 Earnings Conference Call First Quarter 2008 Earnings Conference Call 2 2 2 2 Proxy Statement Disclosure Proxy Statement Disclosure On February 22, 2008, CSX Corporation ("CSX") filed with the SEC a revised preliminary proxy statement in connection with its 2008 Annual Meeting. CSX plans to file with the SEC and furnish to its shareholders a definitive Proxy Statement in connection with its 2008 Annual Meeting, and advises its security holders to read the definitive Proxy Statement when it becomes available, because it will contain important information. Security holders may obtain a free copy of the definitive Proxy Statement and other documents (when available) that CSX files with the SEC at the SEC’s website at www.sec.gov. The definitive Proxy Statement and these other documents may also be obtained for free from CSX by directing a request to CSX Corporation, Attn: Investor Relations, David Baggs, 500 Water Street C110, Jacksonville, FL 32202. CSX, its directors, director nominee and certain named executive officers and employees may be deemed to be participants in the solicitation of CSX’s security holders in connection with its 2008 Annual Meeting. Security holders may obtain information regarding the names, affiliations and interests of such individuals in CSX’s revised preliminary proxy statement filed on February 22, 2008 with the SEC.

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Page 1: csx  1Q 08

11

First Quarter 2008Earnings Conference CallFirst Quarter 2008Earnings Conference Call

2222

Proxy Statement DisclosureProxy Statement Disclosure

On February 22, 2008, CSX Corporation ("CSX") filed with the SEC a revised preliminary proxy statement in connection with its 2008 Annual Meeting. CSX plans to file with the SEC and furnish to its shareholders a definitive Proxy Statement in connection with its 2008 Annual Meeting, and advises its security holders to read the definitive Proxy Statement when it becomes available, because it will contain important information. Security holders may obtain a free copy of the definitive Proxy Statement and other documents (when available) that CSX files with the SEC at the SEC’s website at www.sec.gov. The definitive Proxy Statement and these other documents may also be obtained for free from CSX by directing a request to CSX Corporation, Attn: Investor Relations, David Baggs, 500 Water Street C110, Jacksonville, FL 32202.

CSX, its directors, director nominee and certain named executive officers and employees may be deemed to be participants in the solicitation of CSX’s security holders in connection with its 2008 Annual Meeting. Security holders may obtain information regarding the names, affiliations and interests of such individuals in CSX’s revised preliminary proxy statement filed on February 22, 2008 with the SEC.

Page 2: csx  1Q 08

Executive SummaryExecutive Summary

Michael WardChairman, President andChief Executive Officer

4444

Forward-Looking DisclosureForward-Looking Disclosure

This information and other statements by the company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and objectives for future operation, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “project,” “estimate” and similar expressions.

Forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update or revise any forward-looking statement. If the company does update any forward-looking statement, no inference should be drawn that the company will make additional updates with respect to that statement or any other forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others: (i) the company’s success in implementing its financial and operational initiatives, (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; (iv) the inherent business risks associated with safety and security; and (v) the outcome of claims and litigation involving or affecting the company.

Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified in the company’s SEC reports, accessible on the SEC’s website at www.sec.gov and the company’s website at: http://investors.csx.com/

Page 3: csx  1Q 08

55

First quarter overview . . .First quarter overview . . .

Delivered record Q1 revenues, operating income and EPS

Raised safety and customer service to record levels

Produced best-ever Q1 operating ratio of 77%

Increased dividend, buyback and financial targets

First QuarterEarnings Per Share

$0.52 $0.50

$0.85$0.80

Reported Comparable

2007 2008

60%Increase

Note: Comparable results exclude gains from insurance recoveries and a non-cash equity earnings adjustment

63%Increase

Operations ReviewOperations Review

Tony IngramExecutive Vice PresidentChief Operating Officer

Page 4: csx  1Q 08

77

Leadership, discipline and executionLeadership, discipline and execution

Safety performance improves to record levels

Productivity helping drive the operating ratio lower

Customer service improves to record levels

SafetySafety

ProductivityProductivity

ServiceService

LeadershipLeadership

DisciplineDiscipline

ExecutionExecution

PerformanceExcellence

88

Helping lead one of the nation’s safest industriesHelping lead one of the nation’s safest industries

Rolling 12-Month Averages

FRA Personal Injury

1.42

1.311.24 1.22

1.15

Q12007

Q22007

Q32007

Q42007

Q12008

FRA Train Accidents

3.373.15 3.05

2.85 2.84

Q12007

Q22007

Q32007

Q42007

Q12008

13 WeekAverage

1.10

13 WeekAverage

3.04

Page 5: csx  1Q 08

99

On-time performance at all-time highsOn-time performance at all-time highs

Rolling 12-Month Averages

On-Time Originations

76%77%

78%79%

81%

Q12007

Q22007

Q32007

Q42007

Q12008

On-Time Arrivals

63%66%

69%70% 72%

Q12007

Q22007

Q32007

Q42007

Q12008

13 WeekAverage

79%

13 WeekAverage

69%

1010

Network efficiency provides strong service productNetwork efficiency provides strong service product

Rolling 12-Month Averages

Velocity (mph)

19.9 20.120.4

20.8 20.9

Q12007

Q22007

Q32007

Q42007

Q12008

13 WeekAverage20.8 mph

Dwell Time (hours)

24.724.3

23.723.2

22.8

Q12007

Q22007

Q32007

Q42007

Q12008

13 WeekAverage22.7 hrs

Page 6: csx  1Q 08

1111

Operations wrap-up . . .Operations wrap-up . . .

Driving safety momentum to record levels

Rightsizing resources to current business levels

On-track with Total Service Integration roll-out

Taking service and productivity to the next level

Sales and Marketing ReviewSales and Marketing Review

Clarence GoodenExecutive Vice PresidentSales and Marketing

Page 7: csx  1Q 08

131313131313131313131313

Revenues increased 12% to over $2.7 billionRevenues increased 12% to over $2.7 billion

First QuarterRevenue in Millions

$2,422

$2,713$291

2007 Growth 2008

Record first quarter revenues

Strong service continues to drive revenue growth

Yield management and fuel recovery offset softer volume

141414141414

Revenue growth is strong across most marketsRevenue growth is strong across most markets

First QuarterYear-Over-Year Revenue Growth

(4%)

(1%)

1%

9%

12%

13%

20%

23%

31%

(0%)

Forest Products

Food & Consumer

Automotive

Emerging Markets

Intermodal

Metals

Chemicals

Coal

Phosphates & Fertilizers

Agricultural Products

Revenues impacted by the continued softness in

the housing and automotivesectors of the economy

Page 8: csx  1Q 08

151515151515151515151515

Price continues to drive RPU growthPrice continues to drive RPU growth

Year-Over-Year Change

6.8%6.7%6.5%6.5%7.1%

8.1%6.9%

8.0%

10.5%

14.4%

Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008

Price Increase on 'Same Store Sales' Total Revenue per Unit

Note: ‘Same Store Sales’ price increases exclude impacts from fuel and mix

161616161616161616161616

Merchandise revenue increases 11%Merchandise revenue increases 11%

First Quarter2008 versus 2007

11%

(4%)

15%

Revenue

Volume

RPU

Yield management continues to offset softer volumes

Continued softness in housing and auto sectors

All-time record revenue in agriculture products

Further strength in fertilizer, chemicals and metals

2007 Change 2008

RPU $ 1,791 $ 274 $ 2,065

Volume(thousands)

675 (25) 650

Revenue(millions)

$ 1,209 $ 133 $ 1,342

Page 9: csx  1Q 08

171717171717171717171717

Coal revenue increases 20%Coal revenue increases 20%

First Quarter2008 versus 2007

20%

20%

0%

Revenue

Volume

RPU

Strength in exports offset decline in utility market

Tons shipped increase 1% on flat carload volume

Price, fuel recovery and mix drove strong revenue growth

Overall pricing environment remains favorable

2007 Change 2008

RPU $ 1,370 $ 276 $ 1,646

Volume(thousands)

462 1 463

Revenue(millions)

$ 633 $ 129 $ 762

181818181818181818181818

Automotive revenue flatAutomotive revenue flat

First Quarter2008 versus 2007

(0%)

(12%)

13%

Revenue

Volume

RPU

Softer demand and tight credit impacting auto sales

Lower production at CSX plants impacted volumes

Revenues flat on higher prices and fuel recovery

2007 Change 2008

RPU $ 1,862 $ 242 $ 2,104

Volume(thousands)

109 (13) 96

Revenue(millions)

$ 203 ($ 1) $ 202

Page 10: csx  1Q 08

19191919191919191919

Intermodal revenue increases 9%Intermodal revenue increases 9%

First Quarter2008 versus 2007

9%

(0%)

10%

Revenue

Volume

RPU

RPU increase driven by fuel recovery and mix

Domestic traffic gains offset International weakness

Domestic revenue increased on Transcontinental growth

2007 Change 2008

RPU $ 625 $ 60 $ 685

Volume(thousands)

509 (1) 508

Revenue(millions)

$ 318 $ 30 $ 348

202020202020

Intermodal reports strong first quarter profitIntermodal reports strong first quarter profit

Intermodal Operating Income in Millions

$49

$61$12

2007 Growth 2008

Bottom-line focus increases operating income nearly 25%

Operating initiatives continue to offset rising fuel costs

Operating ratio improves 210 bps to 82.5%

Page 11: csx  1Q 08

21212121212121212121

Second quarter revenue outlook is positiveSecond quarter revenue outlook is positive

Favorable Neutral Unfavorable

Agricultural Products

Chemicals

Coal, Coke & Iron Ore

Metals

Phosphate & Fertilizer

Emerging Markets

Food & Consumer

Intermodal

Automotive

Forest Products

Financial ResultsFinancial Results

Oscar MunozExecutive Vice PresidentChief Financial Officer

Page 12: csx  1Q 08

2323

Double-digit growth in operating income and EPSDouble-digit growth in operating income and EPS

Variance20072008Dollars in millions, except EPS

$ 141$ 485$ 626Operating Income

48.0

$ 0.33

463.2

$ 0.52

415.2

$ 0.85

Fully Diluted Shares in Millions

Earnings Per Share

$ 111$ 240$ 351Net Income

))

63(20(73

)))

(8(99

(138))

55(119(211

Other Income (net)Interest ExpenseIncome Taxes

)$ 291

(150$ 2,422

1,937$ 2,713

2,087RevenueExpense

First Quarter Results

2424

Comparable earnings per share increase 60%Comparable earnings per share increase 60%

Variance20072008Dollars in millions, except EPS

$ 0.30$ 0.50$ 0.80Comparable Earnings Per Share

$ 157$ 467$ 624Comparable Operating Income

$ 14116)

$ 485(18)

$ 626(2

Operating IncomeLess Gain on Insurance Recoveries

)

$ 0.330.02

(0.05)

$ 0.52(0.02

-)

$ 0.85-

(0.05

Earnings Per ShareLess Gain on Insurance RecoveriesLess Equity Earnings Adjustment

First Quarter Results

Page 13: csx  1Q 08

2525

Core earning power increases 25%Core earning power increases 25%

Comparable Operating IncomeDollars in Millions

$467

$624$119

$38

Q1 2007 SignificantDerailments

EarningsMomentum

Q1 2008

Note: Comparable operating income excludes gains from insurance recoveries

2626

Operating ratio improves 370 basis pointsOperating ratio improves 370 basis points

ComparableOperating Ratio

80.7%

77.0%

Q1 2007 Q1 2008

Margin expansion driven by: — Yield management

— Operating efficiencies

Diversity of portfolio helps overcome softer economy

370 bpsImprovement

Note: Comparable operating ratio excludes gains from insurance recoveries

Page 14: csx  1Q 08

2727

Expenses up 7% overall; down 1% excluding fuelExpenses up 7% overall; down 1% excluding fuel

First Quarter Operating ExpensesYear-Over-Year Change

11%

0%

(8%)

55%

(6%)

1%

Inland Transportation

Depreciation

Equipment Rent

Fuel

Materials, Supplies, and Other

Labor and Fringe

Note: Results exclude gains from insurance recoveries

2828

Fuel price more than offsets efficiency and volumeFuel price more than offsets efficiency and volume

Gallons Per ThousandGross Ton Miles

1.35

1.31 1.31

1.27

Q1 2005 Q1 2006 Q1 2007 Q1 2008

$ 4412008 Fuel Expense

))

157(1

(1011

Increase in PriceChange in Volume/MixFuel EfficiencyNet Non-locomotive Fuel

$ 2842007 Fuel Expense

First QuarterFuel Analysis in Millions

Page 15: csx  1Q 08

2929

Labor and Fringe held to 1% increaseLabor and Fringe held to 1% increase

Employee Headcount

32,859

34,230 34,219

32,777

Q1 2005 Q1 2006 Q1 2007 Q1 2008

Note: Headcount reflects the company’s transportation businesses only

$ 7452008 Labor Expense

)

2212

(23

Wage & Benefit InflationIncentive CompensationLabor Productivity, Other

$ 7342007 Labor Expense

First QuarterLabor Analysis in Millions

3030

First QuarterMS&O Analysis in Millions

$539

$507$14

($38)($8)

Q1 2007 SignificantDerailments

Inflation and Other

SafetyImprovement

Q1 2008

MS&O declines 6% on lower derailment costsMS&O declines 6% on lower derailment costs

Page 16: csx  1Q 08

3131

Rent expenses decline 8%Rent expenses decline 8%

Payable Days Per Load

15.1

13.1 13.3 13.8

18.1

16.115.5

14.9

Q1 2005 Q1 2006 Q1 2007 Q1 2008

Total Carloads Excluding Multilevels

Note: Reflects equipment utilization in the carload network on freight cars where CSX incurs rent

$ 1112008 Rent Expense

)1

(122

InflationVolume/OtherEquipment Utilization

$ 1202007 Rent Expense

First QuarterRents Analysis in Millions

3232

Other expenses increase 3%Other expenses increase 3%

First QuarterExpense in Millions

$221 $222

$57 $63

Q1 2007 Q1 2008

Depreciation Inland Transportation

Higher capital base increased depreciation expense

Mostly offset by lower rates from asset life studies

Inland Transportation driven by transcontinental volumes

Page 17: csx  1Q 08

3333

Nearly $3 billion of stock repurchased since 2006 Nearly $3 billion of stock repurchased since 2006

Cumulative Shares RepurchasedDollars in Millions

$2,639

$2,074

$1,192

$644$465

2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008

$2,939

Note: Includes $2.4B purchased under the $3.0 billion program authorized in 2007 and $0.5B under prior programs

3434

Recent actions reflect long-term confidenceRecent actions reflect long-term confidence

$3.0 BillionShare Buyback Program

Targeting completion by fiscal year-end 2009

Builds on nearly $3 billion repurchased since 2006

Consistent with BBB-/Baa3 capital structure objectives

$0.065

$0.100$0.120

$0.150

$0.180

Q42005

Q32006

Q12007

Q32007

Q22008

20%Increase

Quarterly DividendNearly Tripled Since 2005

Page 18: csx  1Q 08

3535

Full-year earnings per share guidance driven by:

— Same store sales price growth of 6%+

— Continued productivity gains

— Diverse portfolio of business

Targeting high-end of $3.40 – $3.60 EPS range on a comparable basis

Update on full-year 2008 earnings guidance . . .Update on full-year 2008 earnings guidance . . .

3636

Long-term financial targets through 2010 . . .Long-term financial targets through 2010 . . .

Exceed $1Bin 2010

$800M– $1Bin 2010

Free Cash FlowBefore Dividends

Low 70’sBy 2010

Mid-Low70’s by 2010

Operating Ratio

18%–21%CAGR

15%–17%CAGR

Earnings Per Share

13%–15%CAGR

10%–12%CAGR

Operating Income

Current2008–2010

Targets

Previous2008–2010

Targets

Note: Compound annual growth rates are off comparable 2007 results; EPS targets are stated before share buybacks

Page 19: csx  1Q 08

Concluding RemarksConcluding Remarks

Michael WardChairman, President andChief Executive Officer

3838

Relentless pursuit of excellence . . .Relentless pursuit of excellence . . .

Page 20: csx  1Q 08

AppendixAppendix

4040

GAAP Reconciliation DisclosureGAAP Reconciliation Disclosure

CSX reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures used to manage the company’s business that fall within the meaning of Regulation G (Disclosure of Non-GAAP Financial Measures) by the SEC may provide users of the financial information with additional meaningful comparisons to prior reported results.

In press releases and presentation slides for stock analysts, CSX has provided operating income, operating ratio and earnings per share adjusted for certain items, which are non-GAAP financial measures. The company’s management evaluates its business and makes certain operating decisions (e.g. budgeting, forecasting, employee compensation, asset management, and resource allocation) using these adjusted numbers.

Likewise, this information facilitates comparisons to financial results that are directly associated with ongoing business operations as well as provides comparable historical information. Lastly, earnings forecasts prepared by stock analysts and other third parties generally exclude the effects of items that are difficult to predict or measure in advance and are not directly related to CSX’s ongoing operations. A reconciliation between GAAP and non-GAAP measures is provided on the following slide. These non-GAAP measures should not be considered a substitute for the company’s GAAP measures.

Page 21: csx  1Q 08

4141

GAAP reconciliation to comparable resultsGAAP reconciliation to comparable results

)$ 291

(150$ 2,422

1,937$ 2,713

2,087RevenueExpense

$ 0.30$ 0.50$ 0.80Comparable Earnings Per Share

)

$ 0.33

0.02(0.05

)

$ 0.52

(0.02-)

$ 0.85

-(0.05

Earnings Per Share

Less Gain on Insurance RecoveriesLess Equity Earnings Adjustment

$ 157

3.7%

$ 467

80.7%

$ 624

77.0%

Comparable Operating Income

Comparable Operating Ratio

$ 141

16)

$ 485

(18)

$ 626

(2

Operating Income

Less Gain on Insurance Recoveries

Variance20072008

4242

First Quarter 2008Earnings Conference CallFirst Quarter 2008Earnings Conference Call